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EVA: Does Size Matter?

Author

Listed:
  • Janet Hamilton

    (School of Business Administration, Portland State University, Portland, OR 97201, USA)

  • Shafiqur Rahman

    (School of Business Administration, Portland State University, Portland, OR 97201, USA)

  • Alice C. Lee

    (Department of Finance, San Francisco State University, San Francisco, CA 94132, USA)

Abstract

Value-added performance measures, such as economic value added (EVA), are promoted as a means to better align managerial incentives and improve firm performance. This paper empirically examines whether EVA adopters outperform a peer group of non-adopters over a long term horizon. It also explores the determinants associated with differences in relative market performance of these two groups. We find mixed results consistent with previous studies. In examining risk adjusted market returns, we find that the full sample significantly underperforms the market. However, during the period of the study, EVA adopters exhibit less negative performance than non-adopters. Moreover, over the entire study period, adopter performance improves in a positive direction, while non-adopters experience a performance decline. Adopting firms also exhibit higher earnings growth and higher returns. In perspective, these results suggest there is some benefit to EVA adoption, relative to a peer group, as adopters outperform their peer group. In a comparison of peer matched groups, firm size and growth opportunities are found to have a significant impact on performance for three size-based groups.

Suggested Citation

  • Janet Hamilton & Shafiqur Rahman & Alice C. Lee, 2009. "EVA: Does Size Matter?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 267-287.
    • Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:02:n:s0219091509001629
    DOI: 10.1142/S0219091509001629
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    Citations

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    Cited by:

    1. Michaela Beranová & Marcela Basovníková, 2011. "Components of the financial performance of agricultural enterprises," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 59(7), pages 57-68.
    2. Belanès, Amel & Saihi, Malek, 2016. "Evidence on complementarity and substitution contingency in monitoring and bonding mechanisms," Research in International Business and Finance, Elsevier, vol. 38(C), pages 161-171.
    3. Peiyi Yu & Bac Luu, 2016. "Bank performance and executive pay: tournament or teamwork," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 607-643, October.

    More about this item

    Keywords

    Economic value added; market value added; value-added performance; size; buy and hold compound monthly returns; market model abnormal returns;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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